Hi guys, Doug Raible here back for another Money Tip Monday, and today I want to talk about the importance of investing in different asset classes.
I hear all the time someone suggesting stocks are the best investment, or real estate, or etfs, or tax free investments, the list goes on and on. The truth is there is no one perfect place to put your money. If there was, everyone would invest there and there would be no reason to talk about anything else. Since that’s not the case, there is a need for asset allocation. This basically means where you invest your money and why.
There are many different vehicles for investing. Some options provide an income, while others do not but appreciate in value. Some investments have tax-free growth, while others you pay taxes each year on the interest or gains. There are investments that you can cash out very quickly, while others may take months or years to get your capital back.
There is a different investment option for each need. This is why it is important to diversify into different things. If all your money is invested into savings and short-term debts, you run the risk of inflation outpacing the small amount in interest you gain. If you have all your money in the stock market, you are vulnerable to big market shifts. If all your money is in real estate, you’re very illiquid and can run into trouble if you need a large sum of cash quickly. I’m a big believer that you should have exposure to many if not all of these vehicles. They each serve a purpose, and we should be taking advantage of all the benefits we can.
Proper allocation is extremely important when it comes to your long term planning. Doing this correctly means, you can see solid growth in your wealth long term. It also means that when life happens and you need access to money, you should have enough to get you buy without too much stress. Lastly it may be able to produce some sort of income along the way. This type of planning is necessary for your long term success with investing. If you haven’t learned more about different assets, take some time to research and see what could be a good fit for your personal goals.
Regardless of what asset class peaks your interest, make sure to always invest in you.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and asset allocation does not protect against market risk.